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Teaming Agreement Nothing More Than an Agreement to Negotiate

Bowie & Jensen Case Law and Legal Update:

In Advance Telecom Process v. DS Federal, the Maryland Court of Special Appeals affirmed the dismissal of a breach of contract action arising out of a “teaming agreement” between two government contractors.

A subcontractor had filed suit claiming that the prime contractor had breached the teaming agreement by failing to execute the anticipated subcontract agreement.  As discussed in the court’s opinion, a teaming agreement is “an arrangement whereby a subcontractor will ‘team’ with a company intending to bid on a government as a prime contractor in order to pool financial and technical resources.”

Generally, courts have held that teaming agreements are nothing more than “agreements to agree” and are therefore unenforceable. Under Maryland law, a binding contract exists where there is “mutual assent to terms reasonably certain.” The Court of Special Appeals concluded that the teaming agreement at issue between the parties in this matter contained some enforceable provisions, but that the provisions sued upon as the basis for the breach of contract claim were not enforceable.

By way of example, the court noted that a term in the teaming agreement providing that the parties had to negotiate a subcontract agreement in good faith in the event of a contract award, imposed an enforceable obligation to negotiate in good faith. However, the court reasoned that because the teaming agreement imposed an obligation to negotiate, it could not have imposed an obligation to ultimately agree and execute as “negotiation” implies that there is not an actual agreement.

Ultimately, this decision is a close cousin to the “letter of intent” opinion issued by the Maryland Court of Appeals on January 27, 2015 in Falls Road Condo Ass’n v. Falls Homeowners Ass’n., 441 Md. 290 (2015). In that case, the court concluded that a letter of intent was enforceable because the parties expressed an agreement on all material terms.

For further questions on teaming agreements and letters of intent, please contact Matt Hjortsberg at 410-583-2400 or at Hjortsberg@bowie-jensen.com.

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